As the markets head into the final trading days of the third quarter, many analysts and market pundits said there would to be a retest of the August 24th 1831 low at some point, and it looks like that ‘retest’ may be under way. Yesterday the S&P fell for its third day in a row, down over 46 points at its low.
On the Globex open Sunday night, the S&P futures opened a tick higher before falling 10 handles lower to 1905.50 in the first hour, but began to rally on the Asian open and continued early into the Euro session making an overnight high of 1929.75, up 15 handles on the day, and up 25 handles from the early low. However, as the session progressed, the futures began to trade back down to a new globex low of 1902.50.
When the U.S. cash markets opened, the ESZ traded at 1910.50, and then the bottom fell out. The sellers kept a lid on the upside bounces throughout the day as a 10 handle bounce was never seen, even 5 handle rallies were few and far between. The S&P 500 index futures made a low in the last hour at 1869.00, down more than 40 handles from the regular trading session open, before bouncing a few handles late in the day.
Shortly after the August sell off, bringing the first 10% correction in the equity index markets since 2011, we highlighted here on the Opening Print the tendency of the S&P 500 during recent corrections to retest its lows before going higher, with the historic action suggesting that the selling was not completely over. Furthermore, back in August, we began to take note of how the price action of the 2015 correction was similar to that of 2011. Interestingly, in the most recent prior correction of 2011, price corrected in August, bounced but maintained range in September, and then retested the lows in early October before finding its low and sustaining rallies higher.
We also noted, just over a week ago, how in recent years the S&P has had a tendency to trade lower of the September 19th date into month’s end. Look, we are not hyping ourselves up, we at times do call it wrong and admit it. However MrTopStep has learned in more than 35 years of working in the financial markets that patterns and seasonals do matter.
The overall price action of the S&P was extremely negative yesterday. While there were a few small rallies, everything was moving. The VIX closed up 15%. Crude oil (CLV15 ) futures sold off on concerns of oversupply and China growth concerns, bonds rallied all the way up to 157.22, the dollar rallied, and base and precious metals fell. In a nutshell the markets acted and traded nervous. Like it wouldn’t take much to really get another big push lower. I am generally a optimist but I am finding it hard to find anything to cheer about in these markets right now.
Overnight, the S&P futures opened a few ticks higher at 1876.25 before drifting lower shortly into the Asian session, and even lower by Asia’s close, finding a low of 1861.00, 15 handles from the globex open. However the U.S. equity futures began to rally on the European open, up 25 handles from the globex lows in less than two hours, trading up to the 1886 handle before falling back. Its now 6:30 am CT and trading at 1880.00, up 8 handles from yesterday’s close, and 6 handles from the overnight high.
In Asia, 8 out of 11 markets closed lower (Nikkei -4.04%), and in Europe 8 out of 12 markets are trading lower (DAX +0.10%) this morning. Today’s economic calendar is the lightest of the week; Redbook, Consumer Confidence and Farm Prices.
2 TRADING DAYS LEFT IN Q3
Our View: This could be a week where Friday just doesn’t come fast enough. The ESZ is down 151 handles from its Sept 17th 2011.75 high. The power mechanics were out in force yesterday. Yesterday’s trade was consumed by the algos & program trading, and you could see it as they went from one sell program to the next all day long. I think the overall complexion of the S&P has changed. It’s gone from a short covering rally to a serious decline. I have said several times that people are scared, and I think there is good reason to be. China weakness and the Federal Reserve’s plan to raise interest rates continues to weigh on stocks, and now the S&P is facing the end of the quarter rebalance and the MrTopStep’s ‘walk away trade’. That said, we still have two full trading days left in September, and while I can’t say the S&P will fall like it did yesterday, I do expect it to be volatile. Our view, sell the early rallies and buy weakness, we think Turnaround Tuesday could be on tap. #ES1900
As always; please use protective buy and sell stops when trading futures and options.
- In Asia 8 out of 11 markets closed lower : Shanghai Comp. -2.02%, Hang Seng -2.97%, Nikkei -4.05%
- In Europe 6 out of 12 markets are trading lower : CAC -0.07%, DAX +0.10%, FTSE -0.55% at 6:00 am CT
- Fair Value: S&P -9.76, NASDAQ -13.29, Dow -109.30.
- Total Volume: 2.3mil ESZ and 6k SPZ
- Economic calendar : Redbook, Consumer Confidence and Farm Prices.[s_static_display]
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